Having a house of your own is a great accomplishment but with that comes the burden of repaying the housing loan. At times the burden keeps on banking on your shoulders and ineffective planning can even cause you more trouble. Having said that, there are many things that you can do about it. You can reduce your housing loan interest rate by just making some smart choices and investing correct strategy.
This article will let you know more about the housing loan and its benefits, the factors that influence your installments, and some of the best ways to reduce your interest rate.
What is a housing loan and what are the benefits of going for it?
A housing loan is financial assistance that you take from a lender to buy, renovate, or construct your house. In return, the lender charges you an interest rate which is added up to the installments that you pay on regular internals. The lender also gives you a set period within which you have to clear all your dues.
There are many benefits of applying for a housing loan and they are:
- Tax benefits:
This is one of the biggest advantages of applying for a housing loan at the current time. To encourage people more and more to have their shelter and fulfill their dreams of owning a house, the government reduces the tax percentage on both the principal amount and your interest rate.
- Low rate of interest:
Interest rates on housing loans have decreased a lot, especially in this decade. Banks often charge you a low rate of interest on the principal amount so that you can easily pay off your debt in the form of small installments. On top of that, several government schemes aim to provide home loans at low-interest rates.
- Saves you from paying rent:
When you have your own house, you are away from the hassle of paying rent. Paying EMI every month is way better than paying rent for a house that you don’t own. And also, in many cases, the amount of rent is quite high and it gets difficult for you to manage this amount from your monthly budget.
- Easily payable:
Banks give you the option of equated monthly installments or EMI which is a very small amount. So, you can easily cut that off from your monthly budget and pay your EMI at your convenience.
- The long tenure of repayment:
You have options to prolong the period of repayment of your loan amount. In many cases, you can stretch up to 20 to 30 years and steadily pay off your debt.
- No prepayment penalties:
Another benefit of applying for a housing loan is that you don’t have to worry about the extra charges or the penalties in case you want to pay your installment before the scheduled time. You have the authority to pay your due before the arrival of the date of repayment.
How to reduce your house loan interest rate at the current time?
When it comes to saving money from your housing loan, all you need to do is opt for smart choices. The smarter the choices, the lesser the interest rate and EMI. Due to the unavailability of guidance and consultation, you can get into the mess of paying more than you are expected to.
So, three things revolve around this whole concept– the principal amount, the rate of interest, and the tenure of repayment. You just need to adjust them in such a way that you pay less and save more.
To reduce your house loan interest rate, you need to follow these simple steps:
- Reduce your repayment period:
It might seem lucrative to opt for a tenure of 20 years or 30 years to repay the existing debt. But what is more important is that you need to reduce your interest rate and to do so you should reduce your tenure as well. Banks charge you a low-interest rate if you reduce your period of repayment. Say, 10 years to 15 years are an ideal preference to repay your housing loan.
- Make down payments:
If you make a down payment at the beginning, your total principal amount is reduced. The lesser the loan amount, the lesser your rate of interest. Make sure you at least pay 25% of your loan amount as a down payment, so that the interest rate becomes tiny as well.
- Make prepayments whenever possible:
Since most banks don’t charge you a prepayment penalty, consider paying it before the due date. Suppose you have surplus money before the month ends and you are not sure if you could save that much till the month’s end, pay it now. You should take advantage of this feature to reduce your rate of interest.
- Look for balance transfer options:
If you are quite uncomfortable with the installment amount and the rate of interest that your current lender is charging, look for a new lender. Look for a lender who charges you less, gives you options with your EMI, and has better terms and conditions.
- Compare different interest rates:
Make sure you conduct a lot of self-research by approaching different banks. Compare different offers, different interest rates, etc. and choose the one that suits you the best.
Summing it up
A housing loan is your way to go to have a house of your own but with it, you also have to repay the debt. And when it comes to reducing your housing loan interest rate, you should make smarter choices and devise the correct strategy. You can use a housing loan calculator to spin different offers and see what you are comfortable with.
If you loved this article and you want to read more on this topic, then there is a great website called Piramal Finance. It has multiple write-ups on topics like personal finance, housing loans, investment schemes, smart financing, etc.